The Commonwealth has a leadership role in policy formulation, particularly in areas such as public health, research and national information management. It funds, directly or indirectly, most non-hospital medical services, pharmaceuticals and health research. With the States and Territories, it jointly funds public hospitals, and home and community care for aged and disabled persons. Residential facilities for aged persons are funded by a number of sources, including the Commonwealth. Public health insurance is provided through Medicare, which is discussed in more detail later in this chapter.

The States and Territories are primarily responsible for the delivery and management of public health services and the regulation of health care providers. They deliver public hospital services and a wide range of community and public health services. For example, some State and Territory government funded organisations provide school dental care and dental care for low income earners, with other dental care being delivered in the private sector without government funding. Local governments within States deliver most environmental health programs.

Public hospitals, which provide the majority of acute care beds, are funded by the Commonwealth Government and the State and Territory Governments, in addition to receiving revenue from services to private patients. Large urban public hospitals provide most of the more complex types of hospital care such as intensive care, major surgery, organ transplants and renal dialysis, as well as non-admitted patient care. Public hospitals have their own pharmacies which provide medicines to admitted patients free of charge and do not attract direct Commonwealth subsidies under the Pharmaceutical Benefits Scheme. This is discussed in more detail later in this chapter.

A small number of doctors and paramedical professionals are salaried employees of the various tiers of government. Many salaried specialist doctors in public hospitals are able to treat some private patients in hospital and usually contribute to the hospital a portion of the income earned from fees charged. Other doctors may contract with public hospitals to provide medical services.

Private sector role

The strong private sector, operating in the delivery of, and insurance for, health services, receives substantial direct and indirect government subsidies. Within this sector, organisations operating for profit and not for profit play a significant role in providing health services, public health and health insurance. For example, privately owned nursing homes provide the majority of long-term aged care beds.

In the past, private hospitals tended to provide less complex non-emergency care, such as simple elective surgery. However, they are increasingly providing complex, high technology services. Separate centres for non-admitted and day-only admitted patient surgical procedures are mostly located in the private sector. This sector includes a large number of doctors and paramedical professionals who are self-employed, generally providing services such as general practice and specialist services, diagnostic imaging, pathology and physiotherapy.

Most prescribed pharmaceuticals dispensed by private sector pharmacies are directly subsidised by the Commonwealth through the Pharmaceutical Benefits Scheme.

An important component of the Australian health care system is private health insurance, which can cover part or all of the hospital charges to private patients directly, a portion of medical fees for services provided to private admitted patients in hospitals, paramedical services and some aids such as spectacles. The Commonwealth subsidises private health insurance premiums through a 30% rebate.

National health care system

Australia has a national system for the delivery of health care which generally covers all permanent residents of Australia. The system is financed largely by general taxes, a proportion of which is raised by an income related Medicare levy. This is discussed in more detail in the following section.

There are five major kinds of Commonwealth health funding mechanisms:

Grants to State and Territory Governments under the 1998-2003 Australian Health Care Agreements to assist with the cost of providing public hospital services;

Health Program Grants to government and non-government service providers for a range of health services (for example, radiation oncology (capital component), pathology and primary medical services). Health Program Grants are used to achieve health policy objectives such as improving access for specific population groups, influencing the growth and distribution of selected and potentially high cost services, or providing an alternative to fee-for-service arrangements, such as the Medicare and Pharmaceutical Benefits Schemes; and

the 30% private health insurance rebate.

In addition to the specific funding mechanisms mentioned above, health services receive part of the general purpose grants provided by the Commonwealth to State and Territory Governments.

Medicare levy

When Medicare began in 1984, the levy was introduced as a supplement to other taxation revenue, to enable the Government to meet the additional costs of the universal national health care system, which were greater than the costs of the more restricted systems that preceded it.

The Medicare levy, which was increased from 1% to 1.25% of taxable income on 1 December 1986, increased to 1.4% on 1 July 1993 and to 1.5% on 1 July 1995.

For 2000-01, the general Medicare levy rate was 1.5% of taxable income. No levy was payable by individuals with income less than $13,807 per year or by families with income less than $23,299, with a further $2,140 per year allowed for each child. Single people with incomes above $50,000 and families with incomes above $100,000, with a further $1,500 after the first child, who were not covered by private health insurance, paid a levy of 2.5% of taxable income, which includes a 1% Medicare Levy Surcharge.

In a Government decision of 24 May 2000, high income earners ($50,000 single, $100,000 families) who purchase a high front end deductible (FED) health insurance product are not exempt from the Medicare Levy Surcharge from 1 July 2000. A high FED costs over $500 for single participants and over $1,000 for families.

In 1999-2000, revenue raised from the Medicare levy was approximately 17.5% of total Commonwealth health expenditure and 8.3% of total national health expenditure. The Australian Taxation Office estimated revenue from the Medicare levy to be $4.4b in 1999-2000.

The Commonwealth Government's funding of hospitals

Total Commonwealth funding under the 1998-2003 Australian Health Care Agreements is currently estimated as $31.6b over the five years. This is a real increase of around 28% over the life of the Agreements.

In 2000-01 total Commonwealth funding under the Australian Health Care Agreements was around $6.3b. Of this amount:

$6,217m was paid to the States and Territories as Health Care Grants including: $134m for quality improvement and enhancement practices in our hospitals, $54m for the implementation of the Second National Mental Health Plan and $30m for the implementation of the National Palliative Care Strategy;

$70m was paid to New South Wales, Victoria, Queensland and Tasmania from the National Health Development Fund; and

the remainder was allocated to national initiatives in the areas of mental health, palliative care and casemix.

Total health expenditure

For 1999-00, the preliminary estimate of total expenditure on health services (including both public and private sectors) was $53.7b, compared with expenditure of $51.0b in the previous year (table 9.29). This represented an average rate of health services expenditure in 1999-00 of $2,817 per person. In 1999-00, governments provided more than two-thirds (71%) of the funding for health expenditure, while the remaining 29% was provided by the private sector. Health expenditure in volume terms grew at an average annual rate of 4.0% between 1989-90 and 1999-00. In 1999-00, health services expenditure as a proportion of Gross Domestic Product (GDP) was 8.5%. The ratio was 8.6% in 1998-99, up from 8.4% in 1996-97 and 1997-98.

Based on available data, about $1,245m was spent on health services provided to Aboriginal and Torres Strait Islander peoples in 1998-99. This figure represented 2.6% of total health expenditure for that year, and included both government and private expenditure. In 1998-99, the estimated expenditure per person was $3,065 for Indigenous people, compared with $2,518 for non-Indigenous people (AIHW Health Expenditure Data Base).

9.29 TOTAL HEALTH EXPENDITURE(a) AND RATE OF GROWTH

Expenditure

Rate of growth

Year

Current prices

$m

Chain volume measures(a)

$m

Current prices

%

Chain volume measures(a)

%

1989-90

28,800

35,347

n.a.

n.a.

1990-91

31,270

36,136

8.6

2.2

1991-92

33,087

37,403

5.8

3.5

1992-93

34,993

39,043

5.8

4.4

1993-94

36,787

40,613

5.1

4.0

1994-95

38,967

42,314

5.9

4.2

1995-96

41,783

44,329

7.2

4.8

1996-97

44,851

46,757

7.3

5.5

1997-98

47,648

48,849

6.2

4.5

1998-99

51,011

51,011

7.1

4.4

1999-00(b)

53,657

52,535

5.2

3.0

Average annual growth rate 1989-90 to 1992-93

. .

. .

6.7

3.4

Average annual growth rate 1992-93 to 1997-98

. .

. .

6.4

4.6

Average annual growth rate 1997-98 to 1999-00

. .

. .

6.1

3.7

Average annual growth rate 1989-90 to 1999-00

. .

. .

6.4

4.0

(a) Reference year 1998-99. Chain volume measures are discussed in detail in the section Chain volume or ‘real’ GDP of National accounts. (b) Based on preliminary AIHW and ABS estimates.

In 1999-2000 there were 748 public hospitals nationally, including 24 psychiatric hospitals, compared with 756 in 1995-96. There were an average of 52,947 beds in public hospitals during 1999-2000 (table 9.30), representing 68% of all beds in the hospital sector (public and private hospitals combined). Public hospital beds have declined from 3.3 beds per 1,000 population in 1995-96 to 2.8 beds in 1999-2000.

The number of patient separations (discharges, deaths, and transfers) from public hospitals during 1999-2000 was 3.9 million, compared with 3.6 million in 1995-96. Same-day separations accounted for 46% of total separations in 1999-2000 compared with 40% in 1995-96.

Total days of hospitalisation for public health patients during 1999-2000 amounted to 16.2 million, a decrease of 2% since 1995-96. The average length of hospital stay per patient in 1999-2000 was 4.2 days. For 1995-96 the corresponding figure was 4.6, reflecting the lower numbers of same-day patients compared with 1999-2000. If same-day patients are excluded, the 1999-2000 average length of stay was 6.9 days, compared with 7.0 days in 1995-96.

An average of 175,291 staff (full-time equivalent) were employed at public hospitals in 1999-2000, of whom 45% were nursing staff and 10% were salaried medical officers. Revenue amounted to $1,223m. Most of this revenue (59%) was from patients' fees and charges. Recurrent expenditure amounted to $14,350m, of which 62% was for salaries and wages. The difference between revenue and expenditure is made up by payments from State/Territory consolidated revenue and specific payments from the Commonwealth for public hospitals, in roughly equal proportions.

Private hospitals

There were 509 private hospitals in operation in 1999-2000, comprising 278 acute hospitals, 24 psychiatric hospitals and 207 free-standing day hospital facilities. The number of acute and psychiatric hospitals has continued to decline since 1995-96 when 323 of these hospitals were in operation. In contrast, day hospital facilities have shown strong growth for several years, with only 140 in operation in 1995-96.

The average number of beds available at private acute and psychiatric hospitals for admitted patients increased by 4% to 23,665 between 1995-96 and 1999-2000. Although there was a slight decrease in the average number of beds from 1998-99, the trend towards larger hospitals continues. There were 1.2 private hospital beds available per 1,000 population in 1999-2000. The average number of beds or chairs at free-standing day hospital facilities (used mainly for short post-operative recovery periods) increased over the same five-year period by 55% to 1,581. This large increase reflects the substantial growth in the numbers of free-standing day hospitals in recent years.

Private hospital separations in 1999-2000 totalled 2.1 million, of which 84% were from private acute and psychiatric hospitals and 16% from free-standing day hospital facilities. Same day separations accounted for 56% of all private hospital separations (compared with 46% of public hospital separations). This higher proportion of same day separations contributed to the lower average length of stay in private hospitals (3.2 days) compared to public hospitals (4.2 days) (table 9.30).

The average number of full-time equivalent staff employed at all private hospitals was 44,657, of whom 59% were nursing staff. Total operating expenditure for private acute and psychiatric hospitals during 1999-2000 amounted to $3,794m. Some 57% of this amount was spent on salaries and wages (including on-costs). Revenue received during the year was $4,012m, of which 91% was received as payments from or in respect of patients. Total recurrent expenditure for free-standing day hospital facilities during 1999-2000 amounted to $163m, and revenue received during the year was $192m.

Under the Australian Health Care Agreements between the Commonwealth Government and the State/Territory Governments, all eligible people are entitled to free accommodation, medical, nursing and other care as public patients in public hospitals.

Alternatively, patients may choose to be private patients in public hospitals, enabling them to choose their doctors. Medicare-eligible patients who elect to be private patients in public hospitals are charged separate fees for medical and hospital care. If patients have private insurance, this will usually cover all or part of the charges by a public hospital. Medicare pays benefits subsidising part of the cost of doctors' charges, while private insurance pays an additional amount towards these charges and other costs (e.g. surgically implanted prostheses) incurred as part of the hospital stay.

Private patients in private hospitals are charged doctors' fees and are billed by the hospital for accommodation, nursing care and other hospital services. If the patient holds private health insurance, it will contribute to the payment of these costs. Eligible Medicare patients in private hospitals generally attract Medicare benefits for doctors' fees.

The rate of Medicare benefit for doctors' services provided to a private patient in hospital, or an approved day surgery, is 75% of the Medicare Benefits Schedule (MBS) fee. The MBS lists a wide range of medical service items with a scheduled fee for each item. Registered private health insurers offer insurance to Medicare-eligible patients for the difference between 75% and 100% of the Schedule fee, and in some cases an additional amount agreed with the hospital and doctor to ensure that the patient has no out-of-pocket medical cost.

Medicare benefits for private doctors' and optometrists' services

Costs incurred by patients receiving private doctors' services, and some optometrists' services, are generally reimbursed, either fully or in part, through Medicare benefits. These benefits are administered by the Health Insurance Commission through its Medicare Offices.

MBS fees are used to calculate Medicare benefit entitlements, but doctors are able to determine their own fees, provided the service is not 'bulk-billed'. If the service is bulk-billed by agreement between the doctor and patient, the doctor must accept the Medicare benefit, paid directly to the doctor, as payment in full.

The rate of benefit for non-hospital medical services, such as visits to doctors in their rooms, is 85% of the MBS fee. Once the difference between the Schedule fee and benefit is more than $52.50 (indexed annually) the benefit is the Schedule fee less $52.50.

In any year, if the sum of the 'gap' payments (being payments above the benefit level and up to the level of the Schedule fee) for non-hospital services for an individual or registered family exceeds a specified amount ($302.30 for 2001, compared with $285.00 in 2000), all further benefits for the remainder of that year are paid at 100% of the Schedule fee.

For private medical services provided in hospital, Medicare benefits are payable at a different rate, as described in the preceding section.

Private insurers are prohibited from insuring all or part of non-hospital services which attract Medicare benefits. They may insure part of the fee for in-hospital medical services, as described in the preceding section.

Pharmaceutical Benefits Scheme (PBS)

The Commonwealth Government provides Medicare-eligible persons with affordable access to a wide range of necessary and cost effective prescription medicines through the PBS. The following details relate to charges and safety net levels applying at 1 January 2001.

Medicare-eligible patients who do not hold a Health Care Card, Pensioner Concession Card or Commonwealth Seniors Health Card, are required to pay the first $21.90 for each prescription item for medicines listed on the Pharmaceutical Benefits Schedule. Concessional patients who hold a concession card must pay $3.50 per prescription item.

Individuals and families are protected from large overall expenses for PBS listed medicines by safety nets. For general patients (non-cardholders), once the eligible expenditure of a person and/or their immediate family exceeds $669.70 within a calendar year, the additional payment the patient has to make per item (co-payment) decreases from $21.90 to the concessional co-payment rate of $3.50.

For concessional and pensioner patients (cardholders), once their total eligible expenditure exceeds $182.00 within a calendar year, any further prescriptions are free for the remainder of that year. All pensioners continue to have their pensions supplemented by a pharmaceutical allowance of $2.90 per week payable fortnightly, or $150.80 per year, to help defray their out-of-pocket pharmaceutical expenses. The allowance is not paid to other concessional beneficiaries.

Patients may pay more than the relevant co-payment where there is more than one brand of the same drug or alternative product that produces similar results. The Government subsidises on the basis of the lowest priced drug, and any difference in price due to brand or product preferences must be met by the patient. The premium can not be counted towards the patient's safety net.

In 2000-01 the PBS dealt with over 148 million benefit prescriptions, representing a cost to the Government of $3,820.6m and a total cost, including co-payments, of $4,564.7m (table 9.31).

The number of PBS prescriptions per capita in 2000-01 was 7.7, compared with 7.2 in 1999-2000. The number of benefit prescriptions increased by 7% over the previous year, and the cost to government of these prescriptions grew by 20% at current prices.

The rate of growth in prescription numbers and their cost reflects the ongoing trend towards newer and more costly medicines. The average dispensed price (in current dollars) for PBS medicine in 2000-01 was $30.83, compared with $27.80 in 1999-2000. However, the average PBS dispensed price as a percentage of Average Weekly Earnings was 3.6% in 1999-2000, only slightly higher than in 1998-99.

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